How to apply outsourcing to a business
We like to think of outsourcing as the labor behind a department within a business. Outsourcing can be used in most areas of a business including manufacturing, IT, networking, payroll, accounting, technical support, security, and customer service. Since we are an accounting firm we will use accounting and finance to demonstrate the outsourcing process. Finance and accounting departments typically provide the Chief Financial Officer (CFO) the following:
- accounting
- tax preparation (sales tax, tax planning, federal and state tax returns and payments)
- payroll (employment tax returns and paychecks issued)
- financial analysis of results (sales analysis, financial ratios, process improvements, buy versus lease equipment, capital expenditure analysis, comparing actual results to forecast/budget, why did we miss our budget for the month, etc)
- financial statement preparation and reporting
- current year forecast, next year budget, and long range financial plans
- accounts payable (paying vendors) and accounts receivable (invoicing and collections)
- cash management (treasury, banking, cash forecasting)
- data entry to accounting software like QuickBooks
- business analysis (competition, pricing, mark up, etc.)
These tasks are completed in large companies and should be completed by all size businesses in some capacity.
Most small businesses will choose low value tasks including accounting, payroll, accounts payable, accounts receivable, tax preparation, and data entry to accounting software which consume a lot of their valuable time. These processes are important to the overall success of the business, but with limited resources (time and money) can you afford to consume time on low value tasks that don’t improve sales or profitability?
In our example outsourcing would benefit the business because they would outsource accounting, payroll, tax preparation and planning, financial statement preparation and reporting so they can focus their time on high value tasks including cash management, financial analysis, sales growth, forecasting, and budgeting. The owner or employees would transfer their time to high value actionable tasks that would lead to improved sales and profitability. I can’t improve a business by completing accounting or payroll, but I can improve the business by analyzing the financial statement results or determining why I missed or exceeded a budget. The other non financial benefit of outsourcing is the business would have a business advisor helping and directing the entire process.
